It is widely acknowledged that the Internet of Things (IoT) will have a huge impact on nearly every industry, and financial services is no exception. Gartner estimates that connected devices will reach an installed base of 25 billion units by 2020, with an annual compound growth rate of 35.2 percent from 2013-2020.

Although the impact of the IoT on insurance is inevitable and more obvious, an analysis by Deloitte predicts that the IoT has potential in both retail banking and capital markets, as well. While use cases may seem somewhat less obvious, banks ultimately rely on access to data for risk management and credit analysis. Deployment of sensors and M2M communication represent a new array of data sources that may be utilized in a banking context.

In addition to adding new data sources to credit scores, sensor technology could revolutionize loan collateral tracking and balance sheet reporting for both SMEs and corporate clients. Imagine the possibilities for real-time monitoring of inventory or livestock for manufacturing and agriculture segments. This would potentially enable banks to perform automated and near real-time balance sheet reporting.

Paired with the promise of smart contracts, banks could be able to deliver credit and loans at a much lower cost, as well as give existing loan officers efficient tools when reviewing credit portfolios. Access to real-time client data also enables new business models like dynamic installments based on real-time analysis of available working capital and cash flow. Much like iZettle and Square, which offer pre-approved loans based on payment data with installments as a fraction of future sales through their terminals.

However, all these solutions are still operating on the premise that an identity is tied to a human. For the IoT to reach its true potential in payments, the concept of identity must also include things. This would also challenge the concept of connecting identity to a bank account, as well as existing card schemes as means of value transfer.

When machines are able to perform transactions with machines in real time at a marginal cost basis, the concept of payments will become obsolete in many use cases as transactions become automated and integrated into other services. As paying for an Uber today is hidden for the end-customer, the car of the future could perform payments to the charging station on your behalf.

While the IoT and M2M communication will render payments invisible as a utility in some cases, banks are also exploring the use of connected devices for increased customer engagement through automated branches and contextual services based on consumer behavior and geo-location.